Before the 15th Philippine Congress of the House of Representatives adjourns sine die on 8 June 2012, we will witness a historic legislative achievement. For the first time, a substantive reform bill on the sin taxes will be passed. For the first time, the reformers will come out as victors, winning against what has been called the “most powerful tobacco lobby in Asia.”
In the past, any initiative to reform the sin taxes would have been thwarted at the ways and means committee, overpopulated, then and now, by legislators associated with tobacco interests. A newspaper editor once told me that a bill to reform the excise taxes on tobacco would not have even reached first base.
Indeed, in the previous attempt to reform the sin taxes, the outcome was worse legislation. Specifically, the current law, which the amended Abaya bill intends to supplant, provides very low tax rates that are not indexed to inflation. Another ugly feature is that some cigarette brands are protected by a price classification freeze, in which the tax rates are based on 1996 prices.
The Abaya bill, as amended, corrects all the mistakes in the law. The bill increases the tax rates significantly. For example, the tax rate for the low-priced cigarettes (priced below PHP 11.50) will jump from PHP 2.72 to PHP 12.00 in 2013 and from PHP 12.00 to PHP 22.00 in 2014. This will be followed by an eight percent increase every two years till 2015 to adjust for inflation.
Representative Isidro Ungab, the chair of the ways and means committee, has done his homework. Not only did he brilliantly engineer the landslide vote for the Abaya bill at the committee level. With his avuncular mien, he has been very persuasive in defending the bill and parrying the arguments of the vested interests.
Rep. Ungab is pitted against a few who side with Philip Morris, the likes of the pigheaded Rufus Rodriguez and the mulish Mitos Magsaysay, who will attempt to filibuster the reform bill. Since the very start, they have repeatedly used fallacious arguments revolving around the issues of smuggling, the decline of revenues, and the welfare of tobacco farmers.
Yet, what they cannot overturn is the health argument—the sharp increase in taxes will significantly lower consumption of sin products and thus drastically reduce the burden associated with smoking and excessive drinking.
Alas, a tobacco-control group named Health Justice has the temerity to “slam” the Abaya bill as amended, invoking the health issue.
I quote a press statement issued by Health Justice on 11 May 2012: They “do not believe” that the approval of the Abaya bill, as amended, is“a cause for celebration because the amendments, which significantly departed from the original version of the bill, seem to have taken for granted the health targets and objectives of the bill.”
The Health Justice press release quotes its supporter, former Health Secretary Jaime Galvez-Tan: “The distortion of the Abaya bill, the failure of the amendment to carry the unitary system of excise taxation for one, is objectionable from the standpoint of public health.”
Apparently, Dr. Galvez-Tan did not carefully study the Abaya amended bill. Although the amended bill proposes two tiers (still achieving simplification as we do away with the current complex four-tier system), it likewise contains provisions that have the effect of gradually achieving a unitary tax. Specifically, the amended bill includes a price survey every two years towards price re-bracketing, and it prohibits downward classification. It is inevitable that cigarette prices rise and hence those classified in the lower tier (with the price cut-off at PHP11.50) will ultimately be reclassified in the higher bracket.
Dr. Galvez-Tan also omits the fact that the tax rate for the low-priced brands will jump by 340 percent in the first year and increase by another 83 percent in the second year, which will be enough to deter young and poor smokers from starting smoking or push them to quit smoking.
What is most shocking is the statement of lawyer Irene Reyes, Health Justice’s managing director: “This amended bill will cost our nation more lives and will not contribute to the achievement of the short-term goal of reducing tobacco consumption by 10 percent.”
Pray tell us: How will a steep tax rate for low-priced cigarettes, equivalent to a 708 percent increase in a period of two years, lead to more deaths? I ask Ms. Reyes to consult Jo-Ann Latuja of Action for Economic Reforms. In an internal note, Jo-Ann wrote: “Retail price for Fortune, for example, will increase by 76 percent in the first year alone. Studies have shown that a 10 percent increase in cigarette prices in the Philippines will decrease consumption by five percent. Hence, with a 76 percent price increase, consumption will decrease by 44 percent. This is a huge gain for health since in the past, price increases for Fortune (between 1998 and 2010) never exceeded nine percent.”
Realizing that the Health Justice position is causing division among tobacco-control advocates, its President, Daniel Tan, wants to assure them that its stance is a matter of strategy: “taking the role of the idealist (bad guy).”
But here’s the rub: “taking the role of the idealist or bad guy” is wrong on at least two counts. First, the Health Justice position suffers from faulty reasoning and ignorance of tobacco taxation, as shown above. Second, the strategy of raising the “ideal” is done at the expense of slamming the amended Abaya bill, thus becoming an obstacle to its approval. Raising the bar at this time actually means raising the barrier to the passage of the reform bill in the Lower House. The correct strategy is to support the Abaya bill as amended, and to work for further improvements when the battle moves to the Philippine Senate.
Health Justice, though, is right about one thing. Straight from the horse’s mouth, its President said that it is the “bad guy.”